The NBA has once again expanded the group of potential investors allowed to take stakes in its franchises, a league source confirmed to The Athletic on Thursday. Most notably, sovereign wealth funds can now buy a share of an NBA team. Sportico was the first to report the news. Here’s what you need to know:
- The league passed this expansion of potential institutional investors during a recent vote by NBA owners.
- The NBA was the first U.S. league to allow private equity funds to take stakes in its teams and now it will allow even more institutional investors to assume passive investment.
- Along with sovereign wealth funds, pension funds and university endowments will now be allowed to buy shares in NBA teams.
- The NBA retains the ability to deny any interested investor and will scrutinize any fund before it decides whether to allow them to buy into an NBA team.
“The NBA Board of Governors recently decided to allow direct, passive investments in NBA teams by institutional investors,” NBA spokesman Mike Bass told The Athletic. “All such investments are subject to league review and NBA Board approval.”
What it means for the NBA
This is another way to widen the pool of potential owners of NBA teams. Franchise valuations have skyrocketed over the last decade, which made it more costly to buy into a team, let alone take a controlling ownership stake. It caused issues for some minority owners who sought to sell their shares but found a scarcity of people who wanted to pay potentially hundreds of millions of dollars for silent, passive stakes.
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This allows organizations flush with resources to invest in NBA teams over the long term. Some universities maintain endowments valued at upwards of $20 billion, according to U.S. News & World Report. Harvard’s endowment is valued at $53 billion, while Yale’s sits at more than $42 billion, and Stanford and Princeton both were at least $37 billion at the end of the 2021 fiscal year, according to the outlet.
Private equity funds like Arctos Sports Partners and Dyal Homecourt bought up stakes in several teams over the last few years after the league changed its rules in 2020. Arctos has stakes in the Warriors, Kings and Harris Blitzer Sports & Entertainment, the parent company of the 76ers. Dyal has taken stakes in the Suns, Kings and Hawks.
This gives the league even more potential buyers for its teams, though none of them can take a controlling ownership stake in a team. Private equity funds are limited to no more than a 20 percent stake in one individual team. The fund firms can only own up to a total of 30 percent of a team.
Why it’s risky for the NBA
While pension funds or university endowments should allow the NBA to bring in relatively quiet investors, the league risks controversy if it allows a sovereign wealth fund into its group of owners.
While sovereign wealth funds can maintain enormous riches — some are valued in the hundreds of billions of dollars — they bring great risk for their partners. Some, like ones associated with autocratic countries, have been alleged to be used to whitewash their countries’ reputations internationally through investments.
The English Premier League faced a storm of criticism when a Saudi Arabian investment fund bought Newcastle United last year. The soccer league was accused of aiding Saudi Arabia’s attempt at sportswashing its international reputation.
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NBA commissioner Adam Silver has spoken publicly about the league’s attempt to maximize its business interests while also dealing with countries where human rights have been curtailed or cut off for large groups of its own people. In April, Silver discussed the league’s decision to hold exhibition games in the United Arab Emirates, which has been condemned by international organizations for its repressive anti-LGBTQ laws.
“It’s a fair question,” he said. “We continue to believe that using sports, using basketball, we can improve people’s lives through sport and that, as Nelson Mandela famously said, sport can change the world. I think that we bring our games all over the world.
“I mean, part of why we choose certain markets is of course economics. There’s no question about that. It’s enormously expensive and resource-driven to bring teams around the world. We also want to try bringing our games to places we haven’t been before, and the Middle East is one of those markets.
“We look at many different factors in terms of how we travel, bring our games. But our ultimate goal is to bring our games to everywhere around the world. There are lines we draw, but we’re an American company and usually we allow those lines to be drawn by our government. Whoever happens to be our administration gives us direction on where they think it’s appropriate for us to operate and not operate.”
Required reading
- The NBA has embraced private equity. With team values skyrocketing, is outside money inevitable for every franchise?
- Newcastle United’s takeover: How strong is Saudi Arabia’s influence one year on?
(Photo: David Dow / NBAE via Getty Images)
